La responsabilidad civil

Many unbanked consumers are unbanked involuntarily, not by choice.158 In addition, consumers in lower-income areas might not have access to a traditional bank because bank

MasterCard, American Express, and Discover). See Bretton Woods, Inc., Analysis of Branded General Purpose

Reloadable Prepaid Cards, supra note 121, at 4 (citing National Urban League, Reloadable Prepaid Cards, Oct.

2011). Javelin’s survey found that nearly one-third of prepaid card users said that carrying a major brand that would allow ubiquitous acceptance of prepaid cards would lead them to increase their use of prepaid cards. Javelin Strategy & Research, Prepaid Cards and Products in 2012, supra note 6, at 11 fig.3.

154 _{See Center for Financial Services Innovation, The Nonprofit’s Guide to Prepaid Cards 14 (Sept. 2010).}

155 _{The accuracy of her claim, however, has been challenged. See, e.g., Kathy Kristof, SuzeOrman Card: Rip-Off or} Righteous?, http://www.cbsnews.com/8301-505144_162-57359114/suze-orman-card-rip-off-or-righteous/ (Jan. 16, 2012).

156 _{See discussion at supra note 36 and accompanying text.}

157 _{ChexSystems is a specialized “private database of consumers who have had deposit accounts closed while}

holding a negative balance.” See PEW,LOADED, supra note 50, at 35 n.31.

158 _{For example, 60 percent of prepaid card users in the Aite Group study expressed a preference to use checking}

accounts rather than prepaid cards, which suggests that they are unbanked involuntarily rather than by choice. See Aite Group, GPR Cardholders, supra note 39, at 6.

branches are scarce in many neighborhoods.159 As a result, unbanked consumers are more reliant on cash payments than banked consumers. According to the FDIC’s 2011 survey of unbanked households, during the past year 23 percent of unbanked households used nonbank providers for products and services such as money orders, check cashing, or remittances.160 The survey also found a dramatic growth in the use of prepaid cards by unbanked households in recent years, rising from 12.2 percent in 2009 to 17.8 percent in 2011.161

The other financial options available to unbanked consumers are limited primarily to check cashers and money orders. The costs of check-cashing services and money orders are comparable to and probably higher than the cost for prepaid cards, especially once the total costs in terms of time and inconvenience are taken into account, although systematic empirical

research is lacking.162 According to a 2006 report by Consumers Union, for example, check cashers on average charged 4.11 percent to cash a payroll check and 2.44 percent to cash a government benefits check.163 Participants in the study by Gordon, Romich, and Waithaka reported paying as much as $13 per check, or $40 to $60 per month, to cash checks.164 Another study estimated that those who use check cashers pay $140 to $720 per year in fees.165 A recent study by the Bretton Woods economic consulting group estimates that consumers who switch from cash to reloadable prepaid cards can save an average of 56 percent a month by avoiding

159 _{See Deyanira Del Rio, Prepaid Cards & Financial Services in Low Income Communities (Dec. 1, 2011),} available at www.fdic.gov/about/comein/DelRioDec11.pdf.

160 _{2011 FDIC National Survey of Unbanked and Underbanked Households, supra note 4, at 6.} 161 _{2011 FDIC National Survey of Unbanked and Underbanked Households, supra note 4, at 6.}

162 _{G. Michael Flores, Adding It all Up: How Prepaid Card Fees Compare to Checking Account Fees (April 2011).} 163 _{Jean Ann Fox & Patrick Woodall, Cashed Out: Consumers Pay Steep Premium to “Bank” at Check Cashing} Outlets, Consumer Federation of America (Nov. 2006). The Consumers Union study is the most recent systematic

study of check-cashing fees that I have been able to locate, nevertheless those figures appear to be more or less valid today. According to the website of United Check Cashing the fees range from 1 percent to 5 percent depending on the state. See UNITED CHECK CASHING, http://www.unitedcheckcashing.com/FAQ.asp. Walmart charges less both

for check cashing services ($3 to $6 per check cashed) and for prepaid cards, which are issued for free.

164 _{Gordon, Romich, & Waithaka, supra note 35, at 19.}

165 _{Bretton Woods, Inc., Comparative Analysis of Reloadable Prepaid Cads to Basic Checking Accounts and Check} Cashing 13 (Mar. 2011) (citing study by Chexar Networks, Inc.).

check cashing, money order, and other fees.166 Also, 27 percent of respondents to the National Urban League survey stated that one of the things they liked most about prepaid cards was that they were cheaper than using a check casher.167 Moreover, none of these studies accounts for the time, inconvenience, and risk of acquiring cash, thus these estimates surely underestimate the full costs of relying on cash.

Cash and money orders offer limited functionality and flexibility in terms of online shopping or electronic transactions.168 In addition, using check cashers and money orders incurs additional transaction costs, such as the “shoe leather” costs of going from place to place. Gordon, Romich, and Waithaka’s study participants commented that “the card kept them from having to run multiple places to cash a check, buy money orders, and then deliver payments.”169 Prepaid card users find this convenience to be especially valuable for recurrent and predictable financial obligations, such as rent. Moreover, using direct deposit can further increase the convenience of prepaid cards relative to cash alternatives by making money available

immediately. Paying a bill by using a check casher or money order typically incurs a delay in posting time of 24 to 72 hours as compared to immediate payment by prepaid card. Prepaid cards can also be loaded conveniently; according to one study, the most popular way to reload a card, used by almost half of prepaid card holders, was to reload the card online.170

166 _{Press Release, Network Branded Prepaid Card Association, Reloadable Prepaid Cards Are Low-Cost Options}

Compared to Other Financial Tools According to Annual Bretton Woods Analysis (Mar. 12, 2012),

http://www.nbpca.org/~/media/680D717219DB40209EE0CAC1EF6D3079.ashx (citing Bretton Woods, Analysis of

Branded General Purpose Reloadable Prepaid Cards, supra note 121).

167 _{See Bretton Woods, Inc., Analysis of Branded General Purpose Reloadable Prepaid Cards, supra note 121, at 4}

(citing National Urban League, Reloadable Prepaid Cards, Oct. 2011).

168 _{Although it is technically possible to shop online using a money order, many major sites (such as Amazon.com,} see http://askville.amazon.com/guys-accept-money-orders/AnswerViewer.do?requestId=76431899) do not accept

checks or money orders and where money orders are accepted the process is highly cumbersome and time- consuming.

169 _{Gordon, Romich, & Waithaka, supra note 35, at 12. See also Fed. Res. Bank of Kansas City, supra note 137, at 9}

(describing routines used by unbanked consumers to pay bills and organize their finances).

In addition, carrying cash can be dangerous and raises the risks of crime and loss. Thus, consumers tend to use electronic payments more frequently in high-crime areas.171 The National Urban League survey found that the second-most common reason for using prepaid cards, stated by 41 percent of respondents, is that they were easier to use and safer than carrying cash.172 Over 40 percent of those in a National Council of La Raza study also stated that one of the things they liked most about prepaid cards was not having to carry cash.173 Survey respondents also

indicated that using prepaid cards (like other types of electronic payments) instead of cash can make it easier to budget and manage money by creating a transaction history.174

Most fundamental, it is exceedingly difficult to function in the American economy today without payment cards of some sort. Activities such as e-commerce, car rentals, and travel all require access to payment cards. According to the Javelin Strategy and Research study, 56 percent of unbanked consumers who own prepaid cards use them regularly for online

transactions, compared to 46 percent of all prepaid card customers.175 Prepaid cards thus serve an important role for unbanked and underbanked consumers. According to a 2009 survey of 400 underbanked prepaid card users by the Center for Financial Services Innovation and the Network Branded Prepaid Card Association, 78 percent of respondents said that their cards were very or

171 _{See Todd J. Zywicki, The Economics of Payment Card Interchange Fees and the Limits of Regulation, ICLE}

Financial Regulatory Program White Paper Series (June 2, 2010); available at

http://www.laweconcenter.org/images/articles/zywicki_interchange.pdf.

172 _{See Bretton Woods, Inc., Analysis of Branded General Purpose Reloadable Prepaid Cards, supra note 121, at 4}

(citing National Urban League, Reloadable Prepaid Cards, Oct. 2011). This does imply that the other 73 percent thought that check cashers were less expensive, just that prepaid card customers chose to use prepaid cards for reasons other than cost (such as convenience).

173 _{National Council of La Raza, supra note 148.}

174 _{See Bretton Woods, Inc., Analysis of Branded General Purpose Reloadable Prepaid Cards, supra note 121, at 4}

(citing National Urban League, Reloadable Prepaid Cards, Oct. 2011); National Council of La Raza, supra note 148.

extremely useful, 74 percent said they were very likely or certain to recommend the card to others, 60 percent used their cards weekly, and 12 percent used them daily.176

IV. Market Failure and Regulatory Responses

For many consumers, prepaid cards are less expensive and more functional than the alternatives. Their decision to use prepaid cards is rational and is consistent with standard economic analysis. Nevertheless, concern has been expressed that prepaid cards are unduly expensive for

consumers, especially low-income, less-educated, and less financially experienced consumers who, it is feared, may pay excessively for prepaid cards compared to alternatives. These

criticisms have produced calls for regulation of the terms and marketing of prepaid cards. There are two rationales that could support regulatory intervention. First, there may be a market failure as a result of inadequate competition that produces monopoly power in the market and higher prices than would prevail in a competitive market. Second, it might be argued that there is a consumer protection problem—that consumers lack sufficient knowledge or capability to understand the complexity of the product and the fees associated with it. Either way, it could be argued, consumers are harmed by higher prices and lower quality.

Economic theory and available evidence to date, however, fail to support either of these rationales for regulatory intervention. Nor is there any reason to believe that government regulation could be fashioned in such a manner as to improve market outcomes. On other hand, although there is little basis for remedial intervention in the name of competition or consumer protection, more modest market-reinforcing interventions might be considered that could

176 _{Center for Financial Services Innovation, Satisfaction with and Usage of Prepaid Cards, NBPCA/CFSI Survey}

proactively promote future competition and consumer protection in this market rather than displacing it by regulation.